While advocates of President Donald Trump’s policies may not believe we’re headed toward a recession, such folks may want to check in with the airliners. If the extreme volatility in Delta Air Lines (NYSE:DAL) is any indication, enterprises are trying to get ahead of a potential slowdown in consumer spending.
It’s impossible to ignore the horrendous hemorrhaging of red ink in the so-called friendly skies. Over the past five sessions, DAL stock suffered a 19% loss of value. Since the start of the year, the equity is down more than 25%. What’s more, the dramatic turn of events have pretty much erased a year’s worth of impressive performances.
During the past 52 weeks, DAL stock has only returned a little over 3%. It’s utterly heartbreaking — and the pain might not be over yet.
Catalyzing the calamity was Delta downgrading its revenue forecast for the first quarter compared with earlier projections, according to The New York Times. Other major carriers — including Southwest Airlines (NYSE:LUV) and American Airlines (NASDAQ:AAL) — also downgraded expectations for the top line.
As NYT stated, these “revised projections suggest that uncertainty and flagging economic confidence have started to take a toll on travel, which can be an early indicator for other industries.”
To be fair, the news wasn’t entirely bad, with slowing travel demand appearing to be limited to flights within the U.S. Still, domestic travel represents a major cog in the overall travel picture. Further, should economic strain continue to weigh on American households, the trimming in discretionary spending could easily affect other consumer sectors.
At a wider level, softening demand may indicate overall greater cautiousness in how people manage their money. That’s not a great environment for the travel sector, thus warranting caution for DAL stock.
Despite the ugliness in Delta and the airliner industry, it hasn’t gone unnoticed among contrarians that in the space of a little over a month, DAL stock practically stepped into a time machine. Basically, if you had missed the great ride in the airliners last year, you have a chance to make up for it this year.
In theory, DAL stock presents an intriguing buy. Using pricing data over the past six years, one can determine that the equity enjoys an upward bias. Over an eight-week period, the chances that a long position will be profitable stands at 56%. That’s not the best odds but over multiple wagers, you should win out more than you lose.
Further, the baseline pricing outcomes are narrow and predictable. Over eight weeks, the median positive return is around 12%, while the median negative return is almost 9%.
However, behavioral trends change under dynamic conditions, in this case extreme (double-digit) volatility. Under such circumstances, an eight-week long position only has a 50/50 shot of rising. What’s more, a four-week position has a 66.67% chance of losing.
Under these dynamic conditions, the median positive return soars to almost 25% while the median negative return clocks in at a remarkable 41%. Put another way, great turmoil erupts when DAL stock loses between 10% and 20% during a one-week period. Investors generally don’t buy the blood on the streets but instead wait until the volatility truly dies down.
With this market intelligence in mind, those seeking a discount may want to wait just a bit more before pulling the trigger.
